At present, the competition in the derivatives DEX track is fierce, the overall market trading volume has declined, and new protocols are still being launched. In a shrinking market, traders are more sensitive to various incentives and yields, and the competition for users among derivatives DEXs is becoming more and more intense.
Since late March, the overall trading volume of derivatives DEX has been on a downward trend. Among the six major derivatives DEX protocols, five have shown a downward trend in trading volume, and only Kwenta has shown a counter-trend growth trend.
Kwenta is a perp front-end built on Synthetix, contributing more than 95% of Synthetix's trading volume growth and revenue growth. Synthetix is a liquidity provider protocol with more than $400 million TVL, providing liquidity pools for front-ends such as Kwenta.
Figure: Weekly trading volume of major derivatives DEXs
The data in this article mainly comes from tokenterminal. Due to different statistical calibers, there may be differences in statistics between different data platforms.
The order book model DYDX still accounts for nearly half of the trading volume of the entire market. However, among the capital pool model derivatives DEX, GMX has been impacted by Kwenta and Level. This week, the trading volume of Kwenta and Level exceeded GMX.
Table: Weekly trading volume of major derivatives DEX since April (unit: mln)
Figure: Market share distribution of DEX derivatives in the fund pool model
GMX's trading volume peaked in mid-April and has since shown a continuous downward trend. The current trading volume level is equivalent to that at the end of 2022.
Figure: GMX weekly trading volume changes
Kwenta is a DEX that was launched at the end of 2022. It started trading incentives in mid-February, and its trading volume increased significantly. It began to use OP tokens as incentives in late April, and its trading volume increased significantly in May.
Figure: Kwenta weekly trading volume changes
Level’s trading volume peaked in mid-April, reaching $2 billion in weekly trading volume, before falling. However, it rebounded in the week of May 22.
Figure: Level weekly trading volume changes
Reasons for the increase in trading volume: more incentives, lower costs
The counter-cyclical growth of Kwenta's trading volume may mainly benefit from two aspects: First, Kwenta's trading incentives are relatively strong. In addition to the token incentives of the protocol itself, 130,000 OPs will be rewarded every week starting from April 26; from May 10 to August 30, 330,000 OPs will be rewarded every week, with a market value of approximately US$500,000.
Second, Kwenta's transaction fee is lower than GMX's. The current transaction fee is 0.02% to 0.06%, depending on the taker and maker. GMX's transaction fee is 0.1%, and a loan fee is charged based on the position. Excluding users who completely brush the volume, for real users, the transaction cost of entering Kwenta is lower.
Figure: Kwenta transaction incentive rules
LEVEL also adopts trading incentives. For every $1 in transaction fees paid by users, they can receive 1 LEVEL Loyalty Token (lyLVL). A total of 10,000 LVL are distributed every day, which are distributed according to the proportion of the user's lyLVL in the entire platform. The validity period for collection is 24 hours.
In addition to the above basic incentives, there is also a Ladder incentive mechanism. When the daily platform revenue exceeds a certain threshold, an additional LVL token will be added as an incentive. This reward will be accumulated and distributed after one week.
Note: Level n = (Revenue-$100,000)/$50,000
Ladder rewards are given to the top 20 traders on the weekly leaderboard. A trader's ranking is determined by the number of points they have circled during the week. Points earned are calculated based on a trader's contribution to the protocol's transaction fees, which can be increased by multiplying by (1+boost). Boost is determined by the total number of LVL tokens staked by a trader on the platform. For every 1,000 LVL staked, the boost factor increases by 1%.
In the past six months, there were 46 days with revenue exceeding $100,000, accounting for 25% of all days. Among them, there were 19 days with revenue exceeding $150,000, 8 days with revenue exceeding $200,000, and 2 days with revenue exceeding $250,000.
Figure: Level daily revenue situation
In addition, the order book model DYDX has maintained a high trading incentive since its launch. Although the incentive token has been reduced twice, there are still about 1.58 million DYDX token incentives per epoch. According to the market price, it is worth about 3 million US dollars, and the average daily incentive reaches 100,000 US dollars. In the current derivatives DEX model, it is a relatively high incentive.
It is necessary to consider the impact of trading incentives on the selling pressure of protocol tokens, as well as the sustainability.
Among Kwenta's incentives, the ecological token OP incentives account for the majority, while the protocol token incentives are gradually decreasing, and the selling pressure of protocol tokens is smaller. Moreover, Kwenta's trading incentives are obtained in a weekly cycle and have a lock-up period. If they are unlocked in advance, a part of the tokens need to be destroyed. However, the OP incentive currently lasts until August 30. If there is no continuity measure after the expiration, the trading volume may drop significantly.
Level's incentives all use protocol tokens, which are redeemed daily and have no lock-up period. Therefore, the selling pressure of protocol tokens is relatively large. In addition, its ladder incentives focus on increasing trading volume, giving the top 20 users very high incentives, which are much higher than ordinary users. This will also lead to a high concentration problem in its trading volume.
Due to the large token incentives and more token unlocking of DYDX, the market has been waiting and waiting for the launch of its DYDX chain and the modification of its token mechanism.
Real trading volume analysis
Since there are trading incentives, it is necessary to analyze the trading volume to understand the general situation of real transactions. The number of users, trading volume, concentration and position size of several capital pool model derivative DEXs are briefly counted.
Table: Analysis of the quality of DEX trading volume of derivatives in the fund pool model
The number of GMX users is 4-5 times that of other projects, and the holding volume is also much larger than other projects, 3 times that of Kwenta and 5 times that of Gains Network.
The average transaction volume per household of Kwenta and Level is significantly higher than other projects without incentives.
Kwenta's 30-day average transaction volume per household is about 1.6 million, which is 4 times that of GMX. The top five trading volumes account for 33.35%, and the concentration is not high. The number of users reached 2,986, ranking first in the second echelon. The holding volume fluctuates to a certain extent, between 40m and 60m.
Level's 30-day average transaction volume per user reached 5.76 million, 15 times that of GMX. The transaction volume is highly concentrated, with the top five traders accounting for nearly 75% of the transaction volume, with a position volume of only 2.6 million and less than 600 users. It can be seen that the platform has a high proportion of fake volume interactions.
Taken together, GMX is still the leader on the track, with significant advantages in the number of users and holdings. Kwenta has more real users and its trading volume is relatively dispersed. After its incentives attract some users, it is possible to retain users by providing better liquidity depth, lower fees, etc. Level has a larger proportion of brush users and higher inflation.
Recent development plans
GMX
According to information obtained from the community, the GMX project team believes that the decline in trading volume and yield is more likely to be caused by the overall decline in the market.
GMX's recent work center is to launch its V2 version. Its V2 beta version was launched on May 17, and users can participate in the test. The main changes include:
GLP will change from the current comprehensive pool to a single pool for each currency pair. Through isolation, high-risk assets can be added.
There are two types of assets, one is the trading pairs that require native asset support such as BTC and ETH, and the other is the synthetic asset trading pairs that are fully supported by USDC. Traders can choose the liquidity of different pools.
Due to the existence of multiple pools, the difficulty for LP participants will increase. They need to analyze the usage of each pool, changes in yields, etc. to decide which pool to participate in.
Funding rates and price impact factors have been added to balance changes in long and short positions.
Account
The development of Kwenta is closely related to Synthetix. The two belong to the same ecosystem, with Synthtix providing good liquidity services and Kwenta providing front-end services and acquiring users.
On May 25, Kain Warwick, founder of Synthetix, put forward some ideas for the future development of Synthetix, including:
SNX is used for transaction incentives, and it is planned to allocate 5 million to 10 million SNX to the incentive plan.
Consider increasing SNX passive staking to expand participation and fund pool size. Previously, Synthetix adopted an active staking model, which means that the staker must perform better than the entire staking pool to obtain a better rate of return, or hedging tools must be used to hedge risks. Now adding a passive staking pool to maintain the basic rate of return is relatively simple and convenient for users to participate.
Subsidize the front-end fees. The income of the front-end operators basically belongs to the SNX stakers, which is insufficient for the long-term development of the front-end operators. For example, Kwenta's protocol income is completely allocated to SNX stakers. It is recommended to subsidize the front-end fees by allocating a certain proportion of SNX (for example, 10 million SNX) from the treasury. Staking on behalf of the front end will generate 3-5% of the base fee income.
The above plans take into account the relationship between the user side, the capital side and the product side respectively. If they can be implemented, they will have a greater incentive effect on the projects built on Synthetix.
Level
Level added a new cross-chain through community voting in May and will migrate to Arbitrum. Currently, a liquidity pool for LVL tokens has been set up on Arbitrum and can be traded. The front-end trading business is expected to be put into use in mid-June. Based on the large number of active users and funds on Arbitrum, this migration may bring in new users and funds.
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